The U.S. Court of Appeals for the Eighth Circuit joined a growing trend among courts in tightening False Claims Act (“FCA”) pleading requirements, affirming the dismissal of a qui tam action brought against a nonprofit hospital because the relators failed to meet the “particularity” standard set forth under Rule 9(b) of the Federal Rules of Civil Procedure. In doing so, the court reminded FCA litigants that Rule 9(b) requires either “representative samples” of false claims plead with adequate specificity, or particular details of a scheme to submit false claims paired with reliable indicia that they were submitted. United States ex rel. Strubbe v. Crawford Cnty. Mem’l Hosp., No 18-1022, 2019 WL 512190 (8th Cir. Feb. 11, 2019). (more…)
The Eighth Circuit recently affirmed a district court’s grant of summary judgment because the “defendant’s reasonable interpretation of an ambiguous regulation ‘belies the scienter necessary to establish a claim of fraud under the FCA.’” The opinion further reinforces a similar ruling the Eighth Circuit released last week (as reported here) and rejects objections from DOJ that such a holding “absolves defendants of liability whenever they can justify their conduct with a plausible post-hoc interpretation of an ambiguous law.” United States ex rel. Donegan v. Anesthesia Assoc. of Kansas City, No. 15-2420 (8th Cir. Aug. 12, 2016).
On August 8, 2016, the Eighth Circuit affirmed the dismissal of a FCA complaint against the University of Minnesota Medical Center (“UMMC”) alleging that UMMC improperly characterized the children’s unit of its hospital as a “children’s hospital”– a term not defined in the relevant statute – in order to avoid a decrease in Medicaid reimbursements under a recent statutory amendment. The Court held that UMMC’s lobbying efforts with the Minnesota Department of Human Services (“MDHS”) to classify itself as a “children’s hospital” under that amendment, and corresponding claims for Medicaid reimbursement, could not be characterized as “false” under the FCA.
Last month, the Eighth Circuit, sitting en banc, overturned a district court’s decision to grant two qui tam relators a share of an FCA settlement that resolved multiple claims, including some claims allegedly unrelated to the relators’ complaint. Rille v. Pricewaterhouse Coopers LLP, et al., No. 11-3514, 2015 WL 5778810 (8th Cir. Oct. 5, 2015). Joining the Sixth Circuit, the Eighth Circuit held that the FCA only entitles a relator to share in the portion of the settlement attributable to the claims that he or she brought. Id.
Posted by Scott Stein and Joe Dosch
On August 7, 2014, the Eighth Circuit affirmed the dismissal of a qui tam False Claims Act suit, and in doing so offered helpful guidance regarding the proper application of the public disclosure bar (while highlighting an open issue regarding public disclosure). The court also addressed whether consideration of materials outside of the pleadings automatically requires the court to treat a motion to dismiss on public disclosure grounds as a motion for summary judgment.
Dr. Lonnie Paulos, the relator, alleged that Stryker Corporation and I-Flow Corporation caused false claims to be submitted to federal healthcare programs by fraudulently marketing and failing to disclose material information regarding their pain pump products. Paulos alleged that the defendants marketed pain pumps for placement in joint spaces, while failing to disclose information about the dangers of using pain pumps in joint spaces and falsely indicating that pain pumps were FDA-approved for use in joint spaces. Paulos further alleged that Stryker and I-Flow caused the submission of false claims by misleading healthcare providers about the use of pain pumps in joint spaces. Paulos alleged that he and another physician colleague were among the first to identify the dangers of placement of pain pumps in joint spaces, and that he warned one of the defendant manufacturers of the possible connection between placement of pain pumps in joint spaces and a painful condition called chondrolysis. The district court (Western District of Missouri) granted defendants’ motion to dismiss pursuant to 31 U.S.C. § 3730(e)(4)(A), agreeing that Paulos’ allegations had already been publicly disclosed in various studies and media reports, and that Paulos was not an “original source” of the information underlying his claims.
On appeal, Paulos contended that despite the numerous medical reports, FDA reports, and federal regulatory disclosures relating to the use of defendants’ pain pumps in joint spaces, those materials did not disclose certain of his specific allegations, such as that “surgeons were not being told that the devices could cause joint damage,” “surgeons were told the devices were approved for use,” and “the devices were being marketed off label.” Paulos attempted to distinguish these claims from the public disclosures by arguing that these allegations established defendants’ scienter. The Eighth Circuit rejected this argument, finding that the publicly disclosed reports did in fact “implicate the companies’ knowledge of the pain pumps’ connection to chondrolysis and the lack of FDA approval.”
The district court had agreed with Paulos that the public disclosures did not demonstrate that healthcare providers submitted claims involving the pain pumps to federal healthcare programs. Nevertheless, it concluded that Paulos’ allegations regarding the submission of false claims merely “add[ed] some color” and did not distinguish Paulos’ allegations from the public disclosures because “any doctor or hospital seeking payment from these federal programs would be submitting a false claim for payment.” The Eighth Circuit noted this aspect of the district court’s ruling, referencing its prior decision in U.S. ex rel. Hixson v. Health Mgmt. Sys., Inc., 613 F.3d 1186, 1188 (8th Cir. 2010) in which the court held that “a relator’s claim cannot be ‘based upon . . . public disclosure of allegations or transactions’ where the public disclosure fails to reveal ‘the false claims itself.'” However, because Paulos did not challenge that aspect of the district court’s reasoning, the Eighth Circuit expressly declined to consider whether Hixson remains good law.
Paulos also contended that he was an original source of the fraud allegations, because he had independent knowledge of the connection between pain pumps and chondrolysis, and he had firsthand knowledge of Stryker’s knowledge. Paulos focused on his assertion that he was among the first to identify the link between pain pumps and chondrolysis. However, the Eighth Circuit concluded that a relator is not an original source simply because he discovered or suspected the alleged fraud first. The court found that the key facts upon which Paulos’ claims were based were in fact disclosed in the prior public disclosures, and his personal knowledge about the link between pain pumps and chondrolysis failed to “materially add[ ] to the publicly disclosed allegations or transactions.” Paulos also argued that he materially added to the scienter allegations by pointing to his communications with a Stryker executive in 2005 raising concerns about the use of certain anesthetics in pain pumps. However, because these communications made no reference to the placement of pain pumps in joint spaces—the key issue in his complaint—the Court held that it did not materially add to the publicly disclosed allegations.
Finally, Paulos raised a procedural challenge to the district court’s ruling, arguing that the district court improperly considered materials outside the pleadings without converting the motion to a motion for summary judgment. The court rejected this argument on two grounds. First, the court noted that when ruling on a Rule 12(b)(6) motion to dismiss, the court “may [still] consider ‘matters incorporated by reference or integral to the claim, items subject to judicial notice, [and] matters of public record.” Furthermore, the court noted that because the FCA “requires a court to dismiss a claim based on public disclosure, a court necessarily considers the alleged public documents in its dismissal.” Accordingly the court rejected Paulos’ contention that the district court erred in failing to convert the motion to dismiss to one for summary judgment.
The Paulos decision provides useful guidance regarding the scope of the public disclosure bar. However, the decision leaves open the question of whether the public disclosure bar applies in the Eighth Circuit when the public disclosures do not explicitly disclose the false claims at issue. The decision also confirms that district courts may continue to consider public disclosure materials beyond the allegations of the complaint, without converting the motion into one for summary judgment.
Posted by Jaime Jones and Brenna Jenny
The Eighth Circuit Court of Appeals recently reaffirmed that mere regulatory noncompliance, standing alone, is not sufficient to establish False Claims Act liability for claims submitted to Medicare. Rather, the court held, a relator must allege facts tying a defendant’s alleged conduct to Medicare’s expectations regarding material conditions of payment. See United States ex rel. Ketroser v. Mayo Found., No. 12-3206 (8th Cir. Sept. 4, 2013).
In the Ketroser case, relators alleged that the defendant violated the FCA when it submitted one written report, rather than two, as part of a pathology analysis incorporating a two-stage testing process. According to relators, because the CPT codes for the tests were both included in a section of the Medicare Codebook that required “reporting,” Medicare expected Mayo, to create two separate written reports. Mayo responded that it created a written report of the first test, and more broadly “reported” the results of the second test through oral communications between physicians and supplemental written comments as needed.
The court affirmed the district court’s dismissal of the claim based on relators’ failure to submit any “specific evidence” that Medicare considered separate written reports to be a material condition of payment. In this regard, the court joined other Circuits, including the Second, Fifth, Sixth, Seventh, and Ninth, in holding that pleading a “claim of regulatory noncompliance” does not satisfy FCA pleading requirements.
Furthermore, the court suggested that even if Medicare had expected a separate written report as a condition of payment, the Codebook’s “reporting” requirement was ambiguous, and Mayo’s reasonable interpretation negated any inference that Mayo had “knowingly” submitted a false claim. As other courts have held (see related posts here and here), the Eighth Circuit reiterated that where a defendant’s “interpretation of the applicable law is a reasonable” one, relators fail to plead the requisite scienter under the FCA.
Posted by Kristin Graham Koehler and Amy Markopoulos
Relators may be able to recover on claims additional to those they originally brought if the additional claims are closely related and would not otherwise have been discovered. The Eighth Circuit held on March 1, in Rille et al. v. Accenture, LLP et al., No. 11-2054 (8th Cir. 2013), that two whistleblowers were entitled to 15 percent of the federal government’s settlement with Hewlett-Packard Co. (“HP”) even though the claim was not part of the original suit they filed. The relators initially alleged that HP engaged in unlawful kickback and defective pricing schemes in its sale of computer equipment to the federal government. The United States intervened in the action and reached a $55 million settlement with HP, allocating $9 million of the settlement to the kickback scheme and $46 million to the defective pricing scheme. The district court awarded the relators a 21% share of the kickback settlement and a 15% share of the defective pricing settlement.
The government then sued to prevent the two whistleblowers from receiving part of its recovery from the qui tam action. The government claimed, inter alia, (1) that the relators’ defective pricing claim was a different defective pricing claim than the one settled, and (2) that the government learned about the conduct through HP’s voluntary disclosure and not from the relators’ qui tam. The trial court found that the government would have had no knowledge of the defective pricing scheme other than from the whistleblowers’ suit. The Eighth Circuit upheld the trial court’s decision, finding that the whistleblower’s defective pricing claim was sufficiently related to the original action to justify the relators’ share of the settlement. The dissent argued, however, that the False Claims Act allows the relator to “recover only from the proceeds of the settlement of the claim that he brought.”
Although, as here, very similar facts would be required for a whistleblower to recover on a claim different from the one actually brought, this case illustrates an expansion of the statute in favor of relators, which will likely only serve to embolden the whistleblowers’ bar.